DEPARTMENT OF STATE Memorandum of Conversation
DATE: April 10, 1952
SUBJECT: Discussion of Items of General Interest to the Dutch
PARTICIPANTS: The Secretary W. Averell Harriman, Director for Mutual Security Assistant Secretary George W. Perkins Assistant Secretary Willard L. Thorp Joseph W. Scott - WE
Foreign Minister of the Netherlands, Mr. Dirk U. Stikker Ambassador J. H. van Roijen of the Netherlands J.G. de Beus of the Netherlands Embassy
COPIES TO: S FE RA Amembassy The Hague G WE E EUR UNA DMS
I opened the conversation by noting that Mr. Stikker and Mr. Harriman had had an opportunity to discuss during lunch the matter of direct contributions to the EPU fund and the possibility of floating a NATO or EPU bond issue. I asked Mr. Harriman to tell us how much of these topics he and Mr. Stikker had been able to cover in their luncheon conversation.
Mr. Harriman said that with regard to the floating of a loan he had explained to Mr. Stikker that we did not think it wise for the U.S. to underwrite the disequilibrium caused by the extreme credit positions in Europe of Belgium, Portugal and Sweden. As for contributions to the EPU itself, Mr. Harriman said he had told Mr. Stikker that we wished to support and help the EPU but that was as far as we thought we could go.
Contribution to the EPU
I read the recommendations contained in a paper which had been prepared on the subject of contributions to the EPU explaining that these recommendations represented the considered views of the three agencies concerned, namely, the State Department, the Treasury Department and Mr. Harriman's office. These recommendations were as follows:
(1) The U.S. has a strong interest in the operation of the EPU and its effective functioning during the defense build-up and recognizes the importance which European countries attach to the EPU. We believe that it will be to our mutual interest for the members of the EPU to solve their present financial problems themselves without direct U.S.
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(2) The EPU should not plan on a direct contribution by the U.S. to its capital. Judging by the experience of the EPU since its inception, it appears to be within the power of the members of the EPU themselves to provide adequate additions to the EPU capital fund which should facilitate the continued functioning of the EPU beyond June 30, 1952. Such additional funds will not obviate the necessity of adopting measures to deal with the problem of the persistent creditors.
Mr. Stikker said that these views seemed to him to be identical with those Mr. Draper had expressed in his statement in Paris on this matter recently and asked us whether this was the final word on this subject. He said that the OEEC and the EPU had been kept together to date but that he could not now make any promises for the future. He said that he was very worried about this and thought it might create real trouble in Europe within the next month or so. He emphasized that he thought an increase in the EPU fund was necessary and he repeated the arguments he had put before us last week regarding the possibility of an end to trade liberalization in Europe if, through an end of the EPU, it became necessary to resort to bilateral trade negotiations. In addition, he said that without an EPU, he didn't see how there could be a Schuman Plan or an EDC. He thus considered the question of contributions to the EPU as one of the key problems in Europe today.
I asked Mr. Harriman how he thought this key problem could be solved. Mr. Harriman said that this was a problem for European countries to solve themselves. He said that it was generic with certain countries which seemed to be determined to earn dollars through the EPU. He did not believe that we should be expected to ameliorate this in view of its origin and also in view of the fact that the countries referred to above maintained deflationary or anti-inflationary policies of so restrictive a nature that they were bound to create the very problem we were now asked to help solve. Mr. Harriman did not think that the Congress would, therefore, give serious consideration to a request for a direct contribution to the EPU fund in view of the fact that we were already contributing indirectly to the EPU through assisting certain of its member with their EPU deficits. He noted also that the EPU still had somewhere in the neighborhood of $300 million in its fund at present. He said that Mr. Stikker had done an amazing job in getting members of the EPU to work together and he urged Mr. Stikker to continue his work.
Mr. Stikker replied that he would continue and hoped that a way could somehow be found to maintain the EPU beyond June 30. There was another, longer-term problem which he wished to mention in this connection, however. This was the matter of getting on with the collective study of the internal financial stability of each OEEC country. He said that the OEEC had been successful in the case of Germany in carrying out such a study. There were real difficulties ahead, however, in getting France and the UK really to accept an international
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committee to study their internal financial affairs. He believed, for example, that the only way it would be possible to get the UK authorities to cooperate with such studies was through convincing them that the system would go on. If, therefore, the shorter-term problem of continuing the EPU beyond June 30 couldn't be solved, he was sure that the longer term problem of establishing the practice of collective responsibility for internal financial stability could not be solved. He concluded by saying that representatives of all of the OEEC countries would want to see him this afternoon after his meeting with us to hear what the possibilities were regarding a contribution to the EPU fund.
Mr. Harriman said that these were matters which ought to be negotiated out in Paris. Mr. Stikker said that as Chairman of the OEEC he had considered it his duty to put these problems before us.
Proposal to Float a $500 Million NATO or EPU Bond Issue in the International Market
We then took up Mr. Stikker's proposal of last week regarding the floating of a bond issue of some $500 million in the international market here. I had promised him last week that we would consult with the other agencies concerned here regarding this matter and read from a paper which had been subsequently prepared on this subject. I told him that as we saw it, such an issue could be successful only if the U.S. were to underwrite it in its entirety and that this would unquestionably require Congressional action.
Discussion of Possibilities of Assistance from International Monetary Fund
Mr. Stikker asked what we thought of the possibility of obtaining an advance from the International Monetary Fund. I asked Mr. Thorp to come into the meeting to give his views on this.
Mr. Thorp said that he thought there would be two difficulties in the way of the Fund's taking favorable action. The first difficulty was the psychological factor. As Mr. Stikker probably knew, the Fund had no enthusiasm for the EPU because the EPU had seemed to "invade" some of the Fund's territory. The second difficulty arose from an established general policy of the Fund regarding the release of its resources. Under this general policy the Fund was husbanding its resources during the present, transitional period until the time came when the Fund's resources could be used to support financial stability. The U.S. was in agreement with this policy which seemed to us to be consonant with the Fund's Charter. A change from this policy might in fact require a modification of the Fund's Charter.
Mr. Stikker then asked whether the U.S. attitude toward the EPU were the same as the Fund's. Mr. Thorp said that it wasn't, that we were supporting the
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EPU and that the Fund was not. He asked Mr. Stikker whether he knew of any studies having been made of the possibility of utilizing the Fund's resources to support the EPU. Mr. Stikker replied that he was not aware of any formal study which had been made but that he and his associates had heard that there had been a change in the general policy of the Fund around the beginning of this year which would make it possible to use the Fund's resources for such a purpose. He also said that it was his and his associates' opinion that the principal barrier to the possibility of the Fund's supporting the EPU was psychological. Mr. Thorp said that although he hadn't discussed this with other members of the Fund's Board, it was clear that we would have to change our general position regarding the use of the Fund's resources before we could agree to their use for support of the EPU.
Mr. Thorp then asked Mr. Stikker whether he saw any end to the excessive creditor position of Belgium. Mr. Stikker replied that he saw no end to it until Belgium stopped trying to earn dollars in Europe. As Mr. Stikker saw it, this was one of four problems which were all hinged together and which had to be solved if we were going to avoid real economic trouble in Europe. These four problems were (1) the problem of international review of the internal financial stability of European countries, (2) an increase in the EPU fund, (3) a decrease in the external credit position of Belgium, Portugal and Sweden, and (4) a change in the Belgian dollar policy. He concluded on this subject by saying we should not be surprised if we ran into serious trouble on the above matters by May or June and expressed the hope Mr. Thorp would look carefully at the problem posed by the psychological barrier regarding the EPU which the International Monetary Fund seemed to have. Mr. Thorp said that he would.
Aid Through the EDC
Mr. Stikker referred to the recent discussions in the EDC Conference about the possible distribution of U.S. military and defense support aid through the EDC. He pointed out that the Netherlands Delegation to the EDC Conference had, to a very considerable extent, made concessions to the wishes of the other Delegations by agreeing that both military end item and dollar aid could be channelled through the EDC and that acceptance of both forms of aid and distribution of military end items could be decided upon by an unqualified majority in the Council of Ministers. The Netherlands Government, however, maintained its position that any distribution of off shore orders, dollar aid grants and loans should be decided upon by unanimity. The reasons for this position were the following:
1. Unlike other EDC countries, the Netherlands does not have military production of any sizable importance and, consequently, is in the least favorable position, as far as distribution of off-shore orders is concerned. On the
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other hand both off-shore orders and grants and loans in dollars are of vital importance to the Netherlands economy.
2. Recommendations as to the distribution of aid under the European Recovery Program required unanimity in the OEEC. The same procedure should be followed in the EDC.
3. If the procedure of unqualified majority were adopted for distribution of off-shore orders and grants and loans in dollars, a situation could arise in which the Netherlands might be in a more unfavorable position than countries which were not participating in the EDC but which received dollar aid following direct bilateral negotiations.
I said that I recalled we had discussed this in Lisbon and I thought that we had reached a satisfactory conclusion there regarding the possible channelling of aid through the EDC. Mr. Harriman added that we had, in the pending MSP legislation, asked Congress for sufficiently broad authority to enable us to give aid directly to the EDC. He couldn't understand why there was any need to decide on the matter Mr. Stikker had raised before an EDC had come into being.
I recalled to Mr. Stikker I had told him at Lisbon that, under the terms of our bilateral aid agreements, the counterpart of aid allocated to a particular country could not be transferred elsewhere without reaching a new bilateral agreement with the country concerned. Mr. Harriman also thought that ultimately the matter of distribution of economic aid would have to be dealt with bilaterally. I added that whatever recommendations an international organization might make, we, for our part, would have to remain free to discuss the matter of economic aid with the country concerned. I could not envisage the Congress' granting funds to an international organization and leaving it up to that international organization to distribute those funds as it saw fit. Finally, I said the way in which a decision was taken by an international organization to arrive at a recommendation regarding the distribution of aid seemed to us to be a matter of concern to the organization itself. We, therefore, could only remain neutral on that point. Mr. Harriman expressed his agreement with this view.
German Contribution
I told Mr. Stikker that I wanted to go over with him again the matter we had discussed last week regarding the German contribution to the EDC. I said that this involved the whole question of getting on with Western defenses and that we should not allow the EDC negotiations and the German
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contractual negotiations to drag on to midsummer when there would be a legislative hiatus. To avoid getting into serious difficulties with the calendar, we had to get the German agreements here before Congress adjourns, which at the very latest would be by July 3. Further, we couldn't run the risk of a filibuster which might take the form of reserves being added to the German agreements such as, for example, a rider calling for the inclusion of Spain in NATO or some other equally unrelated matter.
Last week I had understood Mr. Stikker to say there were two major stumbling blocks in the way of concluding the EDC negotiations, namely, the problem posed by a security guarantee formula and the problem posed by Germany's contribution. In his talk this afternoon, Mr. Stikker had mentioned a third problem, namely, the matter of the distribution of economic aid within the EDC. I then asked Mr. Stikker whether there were any other Dutch problems in the way of getting the EDC Treaty signed in early May.
Mr. Stikker said that he thought the security guarantee problem was now resolved for all practical purposes on the basis of the text which had been put forward by the UK. He said that his Government would accept that text and he understood the French would also accept it. The only thing that bothered him on the matter of security guarantees now was the time problem, namely, the difference in duration of the NATO and the EDC.
Regarding the matter of the distribution of aid within the EDC, he had just given us his views. On the matter of the German contribution, he said that the main Dutch concerns continued to be that there should be no increase in the cost of defense for the Netherlands by reason of the rearming of Germany and that there be no withdrawal of U.S. or UK troops from the continent.
I said that we thought there were two aspects to the problem posed by the German contribution. First, it was clear that whatever might be the cost of German rearmament, the Germans would be able to pay U.S. and UK occupation costs during the first year of the EDC treaty. Beyond that, they would not be able to pay these costs. Secondly, as we had tried to make clear in our talk last week, it was our view that the German contribution should result in an addition to Western defense rather than a substitute for U.S. and UK troops on the Continent. So far as this latter aspect was concerned, the only hitch we could foresee was the inability of the UK at this time to commit itself to maintain troops in Germany beyond the first year of the EDC. There was, unfortunately, no way on earth to solve this problem now.
Mr. Stikker said that he couldn't expect his Parliament to agree to
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such a transfer of sovereignty as was involved in the ratification of the EDC Treaty without knowing where it would lead. The Dutch would have to know whether the German contribution would in fact represent an increase in Western strength on the Continent or whether it would represent a substitute. I said that so far as we were concerned the German contribution would represent an increase in Western strength but that we would still have to work out with the British the problem of maintaining their troops in Germany after the first year of the EDC. I added that the Netherlands Parliament would have to take some risk on this score but that, after considering all the alternatives, there appeared to be little real choice. Without an EDC Treaty, it seemed to us that Europe would be faced ultimately not only with the withdrawal of both U.S. and UK troops but with a neutral Germany as well. This, in our opinion, would be a disaster. We thus had to urge him to bring the EDC Treaty negotiations quickly to a conclusion. I added that although we couldn't expect to get anywhere by asking the UK to make a commitment at this time about their troops remaining in Germany beyond the first year of the EDC, their troops were there now, and so were ours. There was no disposition here to bring ours back assuming the EDC Treaty could be ratified. I said that I had discussed this matter with the President this morning and that he too felt very strongly that we must see the EDC Treaty signed and the German agreements ratified before the adjournment of Congress for the National Conventions in July.
Mr. Stikker said that if the problem of the German contribution could be clarified, he was sure his Parliament would accept the EDC Treaty. He then said that it would be October before the Parliament could actually ratify the Treaty noting that there would be national elections in July and that it would be at least the middle of July before there would be a new government. He did not believe that the EDC Treaty could be signed before May 25 but that once it was signed by the Netherlands Government we could be reasonably sure it could also be ratified by the Netherlands Parliament because the Netherlands Cabinet was such an accurate reflection of the Parliament itself.
I asked Mr. Stikker why, if a new government came into being by July, the Treaty couldn't be ratified before October, and he mentioned the detailed parliamentary procedures required to enable the Parliament to ratify a treaty. I then said that if signature of the Treaty really was tantamount to ratification I thought that we could probably surmount the problem of delay in ratification because in the meanwhile we could be getting along with other ratifications.
I then noted that the Adenauer Germans seemed sold in the face of the recent Soviet notes. I pointed out, however, that if defeatism were
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to grow, the German contractual would be down the drain. I explained our view that today's note from the Soviets, which was very moderate in tone, and the Soviet note of March 10, and the Moscow Economic Conference, taken together, seemed to have the same purpose, namely, to lessen or destroy the possibility of bringing Germany into the defense of the West. That was why it was so vitally important to sign the EDC Treaty and the German contractual agreements while there were some legislatures around to ratify them.
Ambassador van Roijen asked whether we thought there were any real possibilities in today's Soviet note. I said we thought not. It seemed clear that the Russians wanted to destroy the EDC and thus delay, perhaps indefinitely, the possibility of bringing Germany into the Western defense system. To do this, they are now showing a willingness to make proposals which seemed alluring indeed. I had no doubt that they had no intention of ever implementing any such proposals.
Mr. Stikker said that, so far as the Dutch were concerned, he could not promise that the problem of the German contribution could be solved in the time limit we were suggesting. He said it involved a decision of major policy but that he would do his best.
Mr. Harriman said that he was quite frankly amazed that this problem should be coming up at this late date. He had thought we had been asked only to decide on the first year's contribution to the EDC, now the second year's contribution had been brought up. Mr. Stikker said that his Government's curiosity regarding the German contribution for the second year unfortunately remained unsatisfied. He added that he had not himself brought this matter up; it had been raised in Colonel Hackett's report which was addressed to this very problem.
In summarizing I said that the U.S., UK and French understanding with the Germans leaves the second year without commitment regarding the payment for occupation troops in Germany. I said that it was within the power of the EDC countries to decide for themselves what, if anything, they would be able to pay for the second year. I added, however, that if the U.S. were to remain in Germany after the first year, I failed to see how UK troops could leave. On the other hand, it was simply not possible to get Mr. Eden or Mr. Butler to say this in so many words now. Was it not possible for Mr. Stikker to see that if U.S. troops stayed in Germany after the first year, British troops would have to stay. It, therefore, seemed to us that he had a much stronger case to put before his Parliament than he seemed inclined at first to recognize. I said I knew he was doing everything he could but that it was clear it was now necessary to push the EDC negotiations to the decision stage. I asked him whether
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this could be done by the person he had left in charge of the Foreign Office during his absence. He said that it could be. I concluded with a remark to the effect that what we needed now was enthusiastic Dutch leadership.
Indonesian Surplus Property Credit Agreement
Mr. Stikker brought up the Dutch Government request for relief as guarantor under the Indonesian Surplus Property Credit Agreement. He said the Netherlands Financial Counselor here had brought this matter up some time ago and he had been asked to defer it until the question of relief of the Netherlands as guarantor under the ECA loan to Indonesia had been settled. This matter had now been settled and he wished us to consider the latter guarantee. He handed us a copy of a paper which had been signed sometime ago by himself and the then Foreign Minister of the Republic of Indonesia, Mr. Rum, indicating the readiness of the Indonesian Government to meet all of their liabilities relative to the debt under discussion. I told Mr. Stikker that we would look into this matter and see what could be done about it.
Request for Ships to Transport Emigrants from the Netherlands
Mr. Stikker handed us a note requesting the U.S. Government to assist the Netherlands Government in acquiring several vessels from our moth ball fleet to be operated under the Netherlands flag under terms similar to the Merchant Ship Sales Act of 1946. I accepted the note and said that we would take this matter up with the agencies concerned. Mr. Perkins asked whether the Dutch would be willing to lease whatever ships might be available out of the U.S. surplus fleet. Ambassador van Roijen said there might be some difficulty about this in view of the fact it was the intention to convert the ships to emigrant ships. The cost of this would be a dead loss if the ships had to be returned at the end of a lease agreement.
Possible changes in Management of Nicaro Nickel Company
Mr. Stikker asked Ambassador van Roijen to bring up the difficulty the Dutch had recently encountered with the General Services Administrator, Mr. Jess Larson, regarding the management of the Nicaro Nickel Company. Ambassador van Roijen said that this morning Mr. Larson had met with Mr. Warfield, Counselor and General Manager of the Billiton Company and other representatives of that Company which was operating under contract for us in Cuba. He said that the meeting had lasted ten minutes and that Mr. Larson had said he considered it necessary that Mr. Warfield resign his position with the Company, otherwise the U.S. Government's contract with the Company might have to be terminated. I told the Ambassador that we would discuss this matter with Mr. Larson and see what could be done.
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Blocking of Assets of the Slavenburg's Bank in the U.S.
At Mr. Stikker's request, Ambassador van Roijen reviewed the matter of the Treasury's blocking of the assets of the Slavenburg's Bank in this country. He said that he had handed Mr. Matthews a note on this subject on March 31st and had yesterday received the Department's response to it. The Department's reply had not answered Netherlands objections to the methods and pressures used by the Treasury in this case. He added that the Netherlands Government would cooperate to prevent future transactions whereby this or any other Dutch bank's assets could be used as a cover for transactions involving nationals of the Chinese Communist regime. I said that we would look into the matter with the Treasury and see what could be done about it.
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